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Channel launches hurt 21st Century Fox 1Q profit

Wednesday - 11/6/2013, 12:44pm EST

RYAN NAKASHIMA
AP Business Writer

LOS ANGELES (AP) -- Entertainment giant Twenty-First Century Fox Inc. on Tuesday said that investments in new channels, including the launch of Fox Sports 1 and FXX in the U.S., hurt its profit in its fiscal first quarter.

The results marked the first quarter as a separate entity from publishing company News Corp., which was spun off at the end of June. Both entities remain controlled by Rupert Murdoch, who is CEO of 21st Century Fox and executive chairman of News Corp.

Net income for the three months through Sept. 30 was $1.26 billion, or 54 cents per share. That compared with $2.23 billion, or 94 cents per share, a year ago, when the company benefited from the sale of its stake in TV software company NDS Group.

Excluding discontinued operations, adjusted earnings came to 33 cents per share, a penny short of the forecast of analysts polled by FactSet.

A lot of the revenue gain came from including the results of German satellite TV operator Sky Deutschland, in which the company took a majority stake in January. That lifted direct broadcast satellite TV revenue 68 percent to $1.39 billion.

Pay TV revenue from its networks like Fox News Channel and FX grew 12 percent to $2.81 billion, thanks to rising fees from distributors and ad revenue growth in the U.S. and overseas.

Studio revenue grew 9 percent to $2.12 billion, partly because of the sales of TV shows, such as the first two seasons of "New Girl" to online streaming leader Netflix. But the segment wasn't as profitable as a year ago as box office from movies like "The Wolverine" and "The Heat" paled in comparison to last year's blockbuster "Ice Age: Continental Drift."

Chief Operating Officer Chase Carey told analysts on a conference call that audience ratings were "mixed" on Fox Sports 1 and FXX, which were launched Aug. 17 and Sept. 2 respectively, replacing what had been known as the Speed and Fox Soccer channels. The company invested about $50 million getting the new channels up and running, about a quarter of the annual budget of $200 million or so that it plans for the first couple of years.

"We knew going in that building these networks would take a few years, not months, and many of our signature events and programs are yet to be launched," Carey said.

The earnings results were mostly in line with expectations, said James Dix, an analyst with Wedbush Securities.

"Basically, the strong revenue growth gave them the cover to go ahead with their investments," he said.

After shedding publishing assets such as The Wall Street Journal in June, 21st Century Fox is primarily a TV and movie company, a move that investors had long called for.

However, there were still management issues on the TV side as Carey said shows like singing competition series "The X Factor" had a disappointing start to its third season in the U.S., partly hurt by baseball's World Series in October.

Carey said the company was "still on course" to hit its annual targets.

Chief Financial Officer John Nallen said the company expects to grow total segment earnings before interest, taxes, depreciation and amortization by a "high-single-" to "low-double-digit" percentage from the $6.2 billion it posted last fiscal year.

Shares of the New York-based company fell 59 cents, or 1.7 percent, to $33.50 in after-hours trading Tuesday, after closing the regular session down 6 cents at $34.09.

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